NEW YORK (Reuters) - Fannie Mae <FNM.N> has told lenders
that it will require a minimum credit score for the loans it
buys, tightening mortgage standards to protect itself from
record foreclosures sweeping the country.

Lawmakers have been pressuring the largest U.S. home
funding company, along with its rival Freddie Mac <FRE.N>, to
more aggressively buy home loans in a bid to lower mortgage
rates and prop up housing.

However, the two government-chartered companies are
battling their own problems as home loans sour. In response to
soaring mortgage defaults, they are increasing fees,
restricting the loans they purchase and trying to preserve and
raise capital.

The latest steps are part of amended underwriting practices
for loans Fannie Mae buys, aimed at adjusting prices to reflect
heightened housing market risk and protecting the company's
capital, Fannie Mae spokesman Brian Faith said in a statement
on Wednesday.

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Fannie Mae will require a minimum score of 580 for most
loans, adding it will still acquire loans with lower credit
scores in certain circumstances.

Credit scores generally range between 300 and 850 and are
used by lenders to predict a borrower's ability to pay on time.

Mortgages with credit scores below 620 made up less than 6
percent of Fannie Mae's conventional single-family business
volume in 2007, according to the company's annual report. It
didn't provide further breakdown in the report.

Fannie also said it will lengthen the period needed for
borrowers to reestablish their credit history after a
foreclosure to five years from four years.

It will allow shorter recovery periods for borrowers with
"documented extenuating circumstances" which caused the
foreclosure, the company said.

"Given the current state of the mortgage and housing
markets, it is critical for our company to conservatively
manage our business and risks through prudent pricing and
underwriting, while providing sustainable liquidity to our
lender customers and stability to the markets as part of our
core mission," Faith said in the statement.

Fannie Mae has extended forbearances for struggling
homeowners in another move intended to ease stress on the
company's capital.

The move allows temporary suspensions or reduced payments
by borrowers for up to six months, up from four months, Jason
Allnutt, a vice president for credit loss management at Fannie
Mae in Dallas, told Reuters on Tuesday.

Giving homeowners greater leeway will help Fannie Mae limit
the costly process of buying bad loans out of the $2.5 trillion
in mortgage-backed securities it guarantees. Under standard
accounting rules, buying mortgages out of MBS trusts forces the
company to revalue the loans at market levels, which last year
boosted fair value losses sevenfold to $1.4 billion.

Greater flexibility for homeowners eases the strain on
Fannie Mae's capital, which is at the crux of the company's
struggle to balance its role to support housing and staunch
losses.

Fannie Mae and rival Freddie Mac support home ownership by
raising money from investors to support combined investments of
$1.4 trillion, and guarantee loans that are repacked into
mortgage securities which then they sell.

Fannie Mae and Freddie Mac under an agreement with their
federal regulator are expected to raise at least $6 billion in
fresh capital to stabilize the market with new investments.

(Reporting by Justin Grant and Lynn Adler and additional
reporting by Al Yoon)